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Effect of Value Added Tax on the Nigerian Economy
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EUROPEAN ACADEMIC RESEARCH
Vol. V, Issue 2/ May 2017
Impact Factor: 3.4546 (UIF)

ISSN 2286-4822 DRJI Value: 5.9 (B+)
www.euacademic.org
Effect of Value Added Tax on the Nigerian

Economy
ORAKA, AZUBIKE O.
OKEGBE, T. O.
EZEJIOFOR RAYMOND
Department of Accountancy
Nnamdi Azikiwe University, Awka
Abstract:
The objective of this study is to determine the extent to which
value added tax has affected the Nigerian economy. Ex post facto
research design was adopted for this study. In measuring Nigerian
economy, Gross Domestic Product (GDP), Per Capital Income (PCI)
and Total Revenue (TR) were used in the study for the period 2003 to
2015. Secondary data method was adopted in obtaining data on value
added tax, gross domestic product, per capital income and total
revenue. These data were obtained from CBN statistical bulletin,
Federal Inland Revenue Services federal ministry of finance, and
journals. The data obtained were analyzed using Simple regression
analysis. Findings shows that value added tax has not significantly
affected Gross Domestic Product of Nigeria economy. It was also
discovered that VAT has a negative relationship with per capital
income. Finally, we found that VAT has a positive relationship with
total revenue generation of Federal government of Nigeria. The
implication of these findings is that Nigerian economy will experience
slow development in spite that VAT has a positive effect on revenue
generation. Based on these findings, the researcher recommends that
Nigerian government should put in place fiscal policies that will
enhance investment in agriculture, industries and technology which
will stimulate overall productivity growth.
Key words: Value Added Tax, the Nigerian Economy
1185
Oraka, Azubike O.; Okegbe, T. O.; Ezejiofor Raymond- Effect of Value Added Tax on
the Nigerian Economy
INTRODUCTION
Taxation forms the most important sources of revenue to the

government. Tax is a compulsory payment imposed by various
tiers of government on individuals and corporate organizations.
Also there is no „quid pro quo‟ between tax payer and how the
government spends the tax paid. In other word the
governments need not to explain to a payer how his own
particular payment will be utilized (Umeora, 2013).
VAT is a consumption tax levied at each stage of the
consumption chain and borne by the final consumer of the
product or service. Each person is required to charge and collect
VAT at a flat rate of 5% on all invoiced amounts, on all goods
and services not exempted from paying VAT, under the Value
Added Tax Act 1993 as amended. Where the VAT collected on
behalf of the government (output VAT) in a particular month is
more than the VAT paid to other persons (input VAT) in the
same month, the difference is required to be remitted to the
government, on a monthly basis, by the taxable person
(Oserogho & Associates, 2008). Where the reverse is the case,
the taxpayer is entitled to a refund of the excess VAT paid or
more practically, to receive a tax credit of the excess VAT from
the government. All exports are zero rated for VAT, i.e. no VAT
is payable on exports. Also, VAT is payable in the currency of
the transaction under which goods or services are exchanged
(Umeora, 2013).
Value Added Tax (VAT) is one of the most popular taxes
around the world. In sub-Saharan Africa for example, VAT has
been introduced in Benin republic, Cote d‟ Ivoire, Guinea,
Kenya, Madagascar, Mauritius, Niger republic, Senegal, Togo
and Nigeria. Evidence has shown in these countries that VAT
has been an important contributor to total government revenue
(Ajakaiye 2000). Shalize & Squire (1988) found that VAT
accounted for about 30% of total tax revenue in Cote d‟ Ivoire,
Kenya and Senegal in1982. Tait (1989) showed that VAT has
EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

1186
been in effect in Ecuador and Mexico since at least (1973) and

by 1983 accounted for 12.35% and 19.71% of total government
revenues in those countries respectively. Indonesia introduced
VAT in 1983 and by 1988, the ratio of revenue GDP has raised
to 4.5% (Bogetic and Hassan 1993). According to Ajakaiye
(2000), the impressive performance of VAT in virtually all
countries where it has been introduced strongly influenced the
decision to introduce it in Nigeria in 1993.
The main reason for the popularity of VAT is that it
provides a buoyant revenue base that usually yields
significantly more revenue than other tax on consumption. It is
relatively easy to administer and difficult to avoids. The yield
from VAT is a fairly accurate measurement of the growth of an
economy since purchasing power increases with economic
growth (Paulo 2002).
Evidence so far supports the view that VAT revenue is
already a significant source of revenue in Nigeria. For example,
actual VAT revenue from 1994 was #8.189 billion which
is36.59% higher than the project is #6 billion for the year.
Similarly actual VAT revenue for 1995 was #21 billion
compared with the projected #12 billion. In terms of
contribution to total federally collected revenue, VAT accounted
for about 4.06% in 1994 and 5.93% in 1995. As much as #404.5
billion was collected on VAT (5.1%) of total revenue in 2008,
VAT revenue of #1.97 trillion was paid to federation account for
the first half of the year 2015 (CBN,2015).
The prevalence of high rate of unemployment, poor
standard of living and the poor state of infrastructural facilities
in Nigeria is alarming. The vice president of Nigeria, Yemi
Osinbajo re-affirmed this on 26th June 2015 when he asserted
that the poverty level in Nigeria is intolerable
(www.vanguarg.org).Research has been done to determine the
effects of value Added tax on some aspects of the Nigerian
economy. Ajakanye (1999) observed that VAT has become a
major source of revenue in many Sub-Saharan African

1187
countries including Nigeria. Over the years Value Added Tax

(VAT) as a form of indirect tax was introduced in France in
1954. From there it spread rapidly to other developed countries
except to US where it has not been adopted to date.
International Monetary Fund (IMF) was at the vanguard of
spreading the concept to developing and transitional economies.
Since VAT worked in the form of taxation that has turned out
to be goldmine. As stated earlier it was introduced into Nigeria
by Decree 102 of 1993 and started functioning in January 1994.
Ajakaiye (1999) observed that VAT has become a major source
of revenue in many Sub-Saharan flows into the government
treasury. The reason is that poor people spend a large portion of
their income on purchases some of which carry VAT. The
general negative attitude on the part of citizen of the country
towards paying tax, poses tax avoidance, under-utilized
revenue from VAT unaccountability on the side of tax
administrators, poor awareness of the issue of VAT by the
public, ineffective administration and implementation of VAT,
excessive dependence of imports, etc. It also becomes difficult to
comply with VAT since it involves giving out a percentage of
one‟s income to the government. More over in Nigeria the
revenue from VAT is routinely shared out according to agreed
percentages while not a lot of research has been done to
determine the effects(s) of this new revenue source on some
aspects of the economy. Though prior research revealed that
VAT as a tax has contributed immensely on the economic
growth of Nigeria. However, the recent economic recession to an
extent has eaten up the economy.
Against the background of the problems stated above,
this study assesses the effect of value added tax (VAT)
administration on the economic growth in Nigeria. Specifically,
the study aims at achieving the following;
1. To ascertain whether VAT contributes to total tax
revenue of the nation.

1188
2. To determine if VAT contributes to the Gross

Domestic Product of the nation.
3. To find out the effect of Value Added Tax (VAT)
revenue target on actual VAT within the period under study.
Hypotheses
The hypotheses of this study are stated in their null forms
below:
1. HO: Value Added Tax (VAT) does not contribute to total
tax revenue of the nation.
2. HO: Value Added Tax (VAT) does not contribute to the
Gross Domestic Product of the nation.
3. HO: Value Added Tax (VAT) revenue target has no
impact on the actual VAT within the period under study.
REVIEW OF RELATED LITERATURE
Conceptual Framework
1. Value Added Tax
Value Added Tax (VAT) is a consumption tax levied at each
stage of the consumption chain and borne by the final consumer
of the product or services. Each person is require to charge and
collect VAT at a flat rate of 5% on all invoiced amount on all
goods and services not exempted from paying VAT, Under
Value Added Tax Act 1993,as amended. Where the VAT
collected on behalf of the government (output VAT) in a
particular month is more than the VAT paid to other persons
(input VAT) in the same month, the difference is require to be
remitted to the government on monthly basis, by the taxable
person (Federal Inland Revenue Services. Information Circular
No 9304).Where the reversed is the case, the tax payer is
entitled to a refund of the excess VAT paid. All exports are zero
rated for VAT, no VAT is payable on exports. Every person,
whether resident in Nigeria, who sales goods or render services
in Nigeria under the VAT Act as amended is obligated to

1189
register for VAT within six months of its commencement of

business in Nigeria. The registration is with the Federal Board
of Inland Revenue (FBIR).
The VAT Act as amended provides that a foreign non-
resident person or company that carries on economic activities
in Nigeria is also obligated to register for VAT, using the
address of the person with who it has a subsisting economic
activity for the purpose of correspondence with FBIR and for
compliance with the VAT law. The foreign non-resident persons
or company is required upon registration for VAT to include in
its invoice VAT 5% with the instruction to the receiver of the
goods or services to remit the VAT in the currency of the
transaction to the Nigeria government on behalf of the foreign
non-resident person. A taxable person, whether Nigeria
resident outside Nigeria, who fails or refuse to register for VAT
administration within six months of engaging in any economic
activity in the territory of Nigeria is liable to pay a penalty of
$67 for the first month that failure occurs and a further penalty
of $34 for each subsequent month in which the failure
continues. In addition to the fines of non registration .Section
32 of the VAT Act as amended, authorized the FIBR to seal up
the premises from where the economic activity in question is
being carried on within the territory of Nigeria.
2. Implementation of VAT in Nigeria

The key facts which will help to understand the
implementation of vat in Nigeria.
1. VAT is a tax on expenditure .the tax is borne by the final
consumer of goods and services because it is included in
the price paid, although the vat element is to be
separately indicated in the sales invoice.
2. The tax is presently at a flat rate of 5%.
3. The tax is collected on behave of the government by
businesses and organization which have registered with
the firs and vat offices for vat purposes.

1190
4. All businesses and organizations are to register for vat

in the local vat offices or operating bases. Branches of
register. Independently in their own Area of operations
.A business or organization which has registered for vat
is classified as “registered person”.
5. A registered person will pay 5% on goods and services
purchased but claim credit for this tax (called input tax)
when sold, 5% vat (called input tax) is included in the
price of all goods and services supplied by the registered
person.
6. The registered person has to make regular vat return to
first (vat directorates).
7. Vat returns (and payment) are normally made monthly
to the VAT office on or before the 30 th day of the month
following that in which supply was made.
8. Records and account have to be kept on all business
transactions.
9. No individual businesses, organization or government
agency is exempted from the tax on goods and services
and specially specified activities are exempted.
10. 10. Federal Inland Revenue Service (VAT
DIRECTORATES) provide a free information and
adversary services to help the citizens with vital
information concerning VAT.
The guides above is based on the provision of the value added

tax decree 102 1993, as amended.
3. Administration of Value Added Tax in Nigeria

According to Loveday and Nwanyanwu (2015), the success or
failure of any tax, depends largely on the extent of how it is
properly managed. The extent of tax is interpreted and
implemented as well as the publicity brought into it, which
determine how a particular tax is able to meet its objective.

1191
Richard (1993) concluded that “the successful execution of fiscal

policies depends on the quality of public administration and the
formation of policies that are really adapted to the available
resources. VAT may be complicated to administer but it is not
as complex as personal or company income tax.
Federal Inland Revenue service (1999) Stated that there
are five district bodies on which the administration of VAT rest
in Nigeria. They are inter related and the function of each are
complimentary to others;
1. The Board (Federal Board of Internal Revenue).
2. The Service (Federal Inland Revenue Service).
3. The Technical Committee.
4. The Nigeria Custom Service.
5. The VAT Directorate.
Other sub-internal bodies include;
1. The State Internal Revenue Service.
2. The Zonal Officer.
3. The Local VAT Officer.
The establishment of additional 25 VAT offices and 5 zonal

tribunal has been approved. The administration will work
closely with the Nigeria Custom services and the State Internal
Revenue Services. The Custom Services specifically takes care
of the VAT on imports. To qualify for VAT, an Organization of
enterprise must register for with the VAT Directorate. All
domestic manufacturers, wholesalers, distributors, importers
and suppliers of goods and services in Nigeria are expected to
register for VAT.
Per Capita Income

This is also known as average income, It is the total income of a
country divided by its total population .per capital income is
used as a measure of the wealth of the population of a nation
,particularly in comparison to other nations ,which is a
yardstick for measuring standard of living .It is usually

1192
expressed in terms of commonly used international currency

such as United State dollar, and is useful because it is widely
known , and is easily calculated from readily available gross
domestic product (GDP) and population estimates, and produce
useful statistics for comparison of wealth between sovereign
territories. This helps the country to know its status.
Empirical Review
Ajakaiye (1999) studied the macroeconomic effects in Nigeria: a
computable general equilibrium analysis. His study showed
evidence that VAT revenue is already a significant source of
revenue in Nigeria. For example the study stated that in 1994
(the year of inception) actual VAT revenue was in billion. In
1995 actual VAT revenue was used three scenarios to
approximate the presumed Nigerian situation. First, he
assumed that the government pursed an active fiscal policy
involving the reinjection of combination with a presumed non-
cascading treatment of VAT. The result of the study was that
the cascading treatment of VAT with active fiscal policy not
only had the most harmful effects on the one that most closely
approximated to Nigerian situation.
Adereti et. al (2001) empirically investigated the
contribution of Value Added Tax (VAT) to GDP in Nigeria 1994-
2008. They used time series data of GDP and VAT revenue for
the period and did simple Regression analysis and descriptive
statistical method. Their findings show that VAT revenue to
Total Tax Revenue averaged 12.4% which they considered low
compared to 30% in Ivory Coast, Kenya and 19.71% for Mexico.
VAT Revenue to GDP averaged 1.3%. Their study also shows
that a positive and a significant correlation exist between VAT
revenue and GDP. The study also observes that there is no
causality existing between GDP and VAT revenue. The report
concludes by recommending that the government should plug
up all identifiable administrative loopholes for VAT Revenue to
contribute more significantly to Nigeria‟s economic growth.

1193
Ebiringa and Emeh (2012) examined the empirical forms of tax

on the economic growth in Nigeria. Secondary data were
sourced within the periods of 1985-2011and model was specified
and estimated using some econometric. The result showed that
the determinant factor of economic growth in the country
through tax, only custom and exercise duties is capable of
influencing but has an inverse relationship and significant to
the GDP. It is observed that economic instability were
experienced between 1986-1987 and 1993 to 1995 but evident in
the stability in the economic growth from the graph in the rest
of the years of the study around bench mark value of zero line
of the GDP predicted graph based on tax generations in
Nigeria. The study therefore recommended that the company
income tax system should be generally structured to bring
about more yielded revenue results capable of contributing
more significantly to the Nigerian economic as it is done in the
advanced countries of the world. Custom service operations
and revenue generations in the border was not practically
reflected in the economic due to no accountability, transparency
and leakages in the system.
Izedonmi and Okunbor (2010) empirically examined the
contribution of VAT to the development of the Nigerian
economy. Time series data on the Gross Domestic Product
(GDP), VAT Revenue, Total Tax Revenue and Total (Federal
Government) Revenue from 1994 to 2010 sourced from Central
Bank of Nigeria (CBN) were analyzed, using both simple
regression analysis and descriptive statistical method. Findings
showed that positive and insignificant correlation exists
between VAT Revenue and GDP. Both economic variables
fluctuated greatly over the period though VAT Revenue was
more stable. This paper therefore recommends that all
identified administrative loopholes should be plugged for VAT
Revenue to continue to contribute more significantly to
economic growth of the country.

1194
Ajala, Oladayo and Ayorinde (2010) examined the impact of

value added tax on revenue generation in Nigeria. The
Secondary Source of data was sought from Central Bank of
Nigeria statistical Bulleting (2010), Federal Inland Revenue
Service Annual Reports and Chartered Institute of Taxation of
Nigeria Journal. Data analysis was performed with the use of
stepwise regression analysis. Findings showed that Value
Added Tax has statistically significant effect on revenue
generation in Nigeria. The study recommends that there should
be dedication and apparent honest on the parts of all agents of
VAT with respect to the collection and payment and that
government should try as much as possible to improve on the
way of collecting value added tax.
Yakubu and Jibrin (2013) center their study on
analyzing the impact of value added tax (VAT) on economic
growth of Nigeria. Data analysis it used Johansen Co
integration test. The result shows that value added tax have
positive impact on economic growth of Nigeria. The researcher
draw conclusion that the policy makers in Nigeria should
continue this fiscal policy with other macroeconomic indicators
.pursuing this policy will enhance the Nigeria economy
positively, more specifically in time of economic crisis in the
world.
Eyisi. Chioma and Nwaorgu (2015), the study aimed at
ascertaining the effects of taxation on microeconomic
performance in Nigeria from 2002 to 2011. Data were collected
from secondary sources. Three hypotheses were tested using
ordinary least squares regression method. The implication of
the findings showed that government earnings from taxation
will affect consumer spending and boost output production
level. The study recommends that to ensure rapid economic
growth in Nigeria, there is need for government to encourage
local manufacturers of output through provisions of incentives
from taxation. And through the increase of import duties as to
discourage importation of foreign goods which competes with

1195
local goods thereby increasing income generation from taxation

which enhances economic growth. Government should continue
to show fairness in fixing income tax of consumers so as to
encourage consumers spending tax system using a time series
data of 20 years. All the data for the analysis were collected
from central bank.
Umeorah, (2013) investigated the effects of Value Added
Tax (VAT) on economic growth (GDP) and total tax revenue in
Nigeria. VAT was introduced in the country in 1994 and one
wants to estimate its contributions to GDP and total Revenue.
In pursuit of this, two hypotheses were proposed namely First:
HO that VAT does not have significant effect on GDP. Secondly
we have HO: VAT does not have significant effect on Total Tax
Revenue. Simple Linear Regression method was used to
analyze time series data relating to VAT, GDP and Total
Revenue for period 1994 – 2010 and computation done with the
assistance of SPSS. The results of regression analysis show that
VAT has significant effect on GDP and also on Total Tax
Revenue. That means that both Null Hypotheses (Ho) are
accepted.
Izedonmi and Okunbor (2014) empirically examined the
contribution of VAT to the development of the Nigerian
economy. Time series data on the Gross Domestic Product
(GDP), VAT Revenue, Total Tax Revenue and Total (Federal
Government) Revenue from 1994 to 2010 sourced from Central
Bank of Nigeria (CBN) were analyzed, using both simple
regression analysis and descriptive statistical method. Findings
showed that VAT Revenue accounts and total revenue account
for as much as 92% significant variations in GDP in Nigeria. A
positive and insignificant correlation exists between VAT
Revenue and GDP. Both economic variables fluctuated greatly
over the period though VAT Revenue was more stable.
Bakare Adewale Stephen (2013) this study investigated
the enormity of the impact of the value added tax on output
growth in Nigeria. Ordinary least square regression analytical

1196
technique (OLS) was employed for the empirical study. The

study found that a positive and significant relationship exist
between value added tax and output growth in Nigeria. The
results of the finding showed that; the past values of value
added tax could be used to predict the future behaviour of
output growth in Nigeria. The main conclusion of this study
therefore is that Value Added Tax has the potential to assist in
the diversification of revenue sources, thereby providing enough
funds for economic growth and development and reducing
dependence on oil for revenue. Hence our findings and
conclusion support the need for the government to satisfy the
principle of economic justice in the allocation of VAT revenue.
The revenue generated from VAT should be efficiently utilized
for building infrastructure required for sustainable growth and
development.
Obiakor, kwarbai and Okwu (2015) this study employed
ex-post facto research design to investigate the effects of value
added tax on consumption expenditure pattern and consumer
price index in Nigeria. The study considered value added tax
revenue, house hold consumption expenditure on durable and
non-durable goods as well as consumer price index for the
period 1994 - 2014. Data used for analysis were extracted from
National Abstract of Statistics of the National Bureau of
Statistics and the Statistical Bulletin of the Central Bank of
Nigeria. The tools of analysis were multiple regression models
on households‟ durable and non-durable goods consumption
expenditures and consumer price index with lagged valued
variants. Results showed that value added tax and one-period
lagged consumption expenditure on durable goods significantly
affected households‟ consumption expenditure on durable goods.
Further, positive significant effects were established for value
added tax in relation to households‟ consumption expenditures
on non-durable goods; and VAT, its variants and previous
spending levels did not discourage households‟ consumption

1197
expenditures; and value added tax did not bear significant

relevance on consumer price index.
Okwori and Ochinyabo (2014) this study focused on the
assessment of the effect of Value Added Tax on Revenue
Generation for sustainable development in Nigeria. The study
is aimed at establishing an innovative method of assessing
taxation on the Revenue Productivity theory-that is, high
revenue generation at minimal cost given a very broad all
inclusive base. Using a log-linear data for regression on e-views
7.0 technique, the study found a positive 0.186 tax elasticity
and buoyancy which is desirable. This shows that VAT is not
only a viable taxation tool in Nigeria but also has great
potential to generate adequate revenue for the Nigeria
Government. But, government as an element of the package
included numerous exemptions, generous concessions, and
arbitrary waivers especially for unproductive ventures. This
has greatly affected revenue base, leaving high annual budget
deficits, and an extremely poor fiscal performance. This also
has implications for proper VAT threshold which raises
concerns of abuse and high cost, sharply leading to revenue
losses and poor response of VAT to GDP growth. The study
therefore recommends that there is a need to consider the
technology of the tax collection. That is; the feasibility of the tax
instruments, cost of administration, and compliance. Also,
special attention in the area of automation, consumer
information and its mechanism modified to respond to GDP
flexibilities is required. Holds negatively and escalate
consumer price index to undesired level.
Oko (2015) the impact of value added tax on lease
service consumption is variously felt among lessors, lessees and
lease financers across the globe sequel to the variance in
environments of operation. This accounts for variation in the
acceptability of leasing and its marketing as contributor to
macro economic development through growth. This work
addressed these controversies as it compared the incidence

1198
sales tax, as an alternative to value added tax; related value

added tax operations in Nigeria to Ghana and identified
strategies to the re-positioning of value added tax in Nigeria. As
a survey based exercise, the work relied on the use of
questionnaire and interviews with the records of Equipment
Leasing Association of Nigeria, those of Ghana and Afro lease
as complementary and supplementary sources of data. Tools of
analyses include „t‟ test statistics for difference of means,
Analysis of Variance (ANOVA), Pearson correlation coefficient
„R‟; Co-efficient of determination R2 and the Spearman‟s rank
correlation coefficient, given the ranking of variables using the
different scales as weighted based on the modified likert
ranking scale. Common observations include the existence of
insignificant difference between the impact of sales tax and
value added tax on the consumption of lease services, Nigeria
compared to Ghana has poor attitude to value added tax
administration hence the poor level of lease service acceptance
in Nigeria, Rebate in value added tax rate and efficiency in tax
accounting education for cost minimization have the potency of
addressing the supposed poor attitude of Nigerians to lease
service consumption. Recommended thus are, the re-
structuring of the administration and policies of value added
tax, for the recognition of the differences in characteristics of
the different segments of the lease ticket markets, emphases on
lease e-transaction for fraud control and the improvement in
the level of value added tax accounting education for cost
management.
Sackey and Ejoh (2014) investigate the effects of „Tax
Revenue Allocation on Consumption‟ as the economy grows and
to determine the dynamics (stability) of the various tax revenue
allocations to the Calabar Municipal Council with
predetermined time covering a period of 23 years (1980 to
2002), and to partly observe inter-temporal changes, if any, in
the behavior of revenue flexibility coefficients. Secondary data
of tax revenue records were used for the study. The data

1199
collected was analyzed using the ordinary least square method

to evaluate the impact of tax revenues allocation to the local
government and its effect on consumption tax (VAT ) also
known as sales tax levied on the value added at each stage of
production or distribution of goods and services and paid by the
ultimate consumer. The emerging results, established that
there was not sufficient tax revenue generated within the
period of study through consumption (VAT), hence the
inflexibility of Federal Government Tax Revenue Allocation,
State Government Tax Revenue Allocation and Internally
Generated Tax Revenue with respect to consumption.
Akintoye and Tashie (2013) examined the effect of Tax
compliance on economic growth and development in Nigeria.
Tax compliance here is proxy in willingness of the citizens to
pay tax. The conclusion is that compliance through the
Willingness of citizens to pay tax is very important and cannot
be ignored. It is suggested that Government should pay
attention to the factors that influence the willingness of citizens
to pay Tax and improve on them, thereby improving peoples‟
willingness to pay tax, government Revenue and economic
growth and development of the nation generally.
Sam, Olusanya, Ajide, Afees and Akinola (2008)
analyzes two items of revenue (statutory and VAT) shared
among the states including FCT and all the Local Government
Areas (LGAs) between May 1999 and December 2008. The net
statutory allocation after deductions was also analyzed. Using
Cluster analysis to evaluate revenue allocation in Nigeria,
States and LGAs exhibiting similarity in revenue received were
grouped and their common features highlighted. The result of
this exercise may be a pointer to resolving the issue of viability
when combined with other statistics.
Jibri, Blessing and Ifurueze (2012) ascertain the Impact
of Petroleum Profit Tax on the growth of Nigerian economy for
the period 2000- 2010. The method of analysis used was
ordinary least square method, after the analysis the research

1200
findings includes: Petroleum profit tax impact positively on

Gross Domestic Product of Nigeria and it is statistically
significant. Also total oil revenue impact positively on Gross
Domestic Product of Nigeria and it is statistically significant.
Uwaoma and Geroge (2015) investigate the impact of
value-added tax on corporate financial performance of quoted
companies. The population elements include the General
Managers, Chief Accountants, Finance Managers, Chief
Internal Auditors, External Auditors, and Tax Administrators
of the selected companies. A total of forty (42) respondents were
considered for this study. A well-structured questionnaire
designed in five-point Likert Scale was administered on the
respondents to elicit their responses. The data generated for
this study were presented in tabular form and analyzed using
frequencies and simple percentages while the stated hypotheses
were statistically tested with the simple regression analysis
and the t-test. Their findings indicated that Value- Added Tax
(VAT) impacted negatively on the financial performance of
agribusinesses though the impact is of insignificant value.
Akenbor and Arugu (2014) this paper investigated state
government taxation in Nigeria with a view to determine its
impact on economic growth. To achieve this purpose, it was
hypothesized that state government taxation has no significant
impact on economic growth in Nigeria. In line with the above,
related literature were critically reviewed. The data for this
study were generated from the Central Bank of Nigeria (CBN)
Statistical Bulletin for a period of 13 years (1999-2012) the data
were analyzed with multiple regression analysis. The findings
revealed that state government taxation has a significant
impact on economic growth in Nigeria. Based on the above, it
was recommended that state government should rise to the
challenge of boosting its revenue base by ensuring that all
available sources of revenue are adequately tapped and also
ensure that tax administration and collections become more
effective and efficient in Nigeria.

1201
Adesina and Famous (2013) assesses the level of tax education,

particularly the level of understanding of VAT law amongst
three categories of taxpayers in Nigeria. The data for the study
were collected by means of structured questionnaires
administered to the respondents. The analysis of results
showed that most of the respondents have poor knowledge of
VAT law in Nigeria, irrespective of their level of literacy, and
that there was no significant difference in the amount of
knowledge of VAT law amongst the three groups of respondents
used for the study.
John, Ebiere and Emmanuel (2014) examine the
dynamic causal relationship between tax revenue components
and economic growth in Nigeria. The objective is to provide
justification for policy adjustments necessary for broadening
the narrow revenue base of the government and enhancing
economic growth using time series data on different types of
Taxes and RGDP from 1986 to 2012. Bounds testing technique
was used in analyzing the data. The results indicate that total
tax revenue has a significant effect on economic growth;
explaining about73.4% of the total variation in RGDP. CIT,
EDT and OTR were each found to have significant influence on
economic growth; sustaining long-run equilibrium relationships
with RGDP. No significant causal relationships were shown to
exist between PPT, VAT, and economic growth. The paper
concludes that there exist a long-run equilibrium relationship
between aggregate tax revenue and economic growth.
Igweonyia and Obiageli (2011) investigate the impact of
VAT on the Nigeria economy as it relates to how it can improve
government revenue and throws more light in its contribution
to the economic growth and development of Nigeria. In addition
to the oral interview and questionnaires distributed, was a
review of study of literature relating to the impact,
administration and collection of VAT in Nigeria. Simple
percentages, bar chart, pie chart, and chi-square were used for
data analysis on which purposive sampling technique was

1202
adopted. The findings shows that A, VAT has economic impact

in consumption pattern in Nigeria B, VAT has positive impact
on the economy of Nigeria. C, the payment of VAT has
improved the prospects of businesses, organizations and
industries in Nigeria.
Ayuba and Eluwa (2013) examines the impact of Tax
Reform Policy on Revenue generation of the Federal
Government of Nigeria. The primary objective of this paper is to
prepare a case study on tax policy reforms in Nigeria, with the
specific objectives of examining the main tax reforms in the
country, highlighting tax revenue profile and contributions of
the three categories of taxes identified as personal, company
and custom duties to the total revenue collection. The
techniques of data analysis adopted for the empirical study
were the Analysis of Variance Method and the Scheffe‟s
Multiple Comparison techniques. In addition, the „F‟ test of the
analysis of the variance was used to test the hypothesis of no
significant difference in the impact on personal, company and
custom duty tax revenues of the Federal Government by each of
the following tax reform policy objectives; enhancement of the
principles of good tax system, improvement in the tax
administrative structure, removal of disincentives to tax
compliance and promotion of investment opportunities. From
the results, it was concluded that each of the tax reform policy
objectives had significant impacts on the personal, company
and custom duty tax revenues of the federal government of
Nigeria.
Osundina and Olanrewaju (2013) studied welfare effect
of taxation on Nigerian economy using consumption theory
function. Total consumption expenditure was used to measure
the welfare effect of taxation while private investment level and
total federally collected revenue were used to capture the
economy. Ordinary least square method regression analysis
was used to measure the possible effect. The study conclude
that the negative and significant effect of total federally

1203
collected revenue on total consumption expenditure can be as a

result of mismanagement of funds, lack of implementation of
policy and corruption which is very rampant in Nigeria.
Ogbonna and Appah (2012) examine the impact of tax
reforms on the economic growth of Nigeria from 1994 to
2009.To achieve the objective of the study, relevant secondary
data were collected from the Central Bank of Nigeria (CBN)
Statistical Bulletin, Federal Inland Revenue Service (FIRS),
Office of the Accountant General of the Federation, and other
relevant government agencies. The data collected were
analyzed using relevant descriptive statistics and econometric
models such as White test, Ramsey RESET test, Breusch
Godfrey test, Jacque Berra test, Augmented Dickey Fuller test,
Johansen test, and Granger Causality test. The results from
the various test shows that tax reforms is positively and
significantly related to economic growth and that tax reforms
granger cause economic growth. On the basis of the findings,
the study concluded that tax reforms improves the revenue
generating machinery of government to undertake socially
desirable expenditure that will translate to economic growth in
real output and per capita basis.
Margaret, Charles and Gift (2014) on an empirical
analysis of Taxation and economic growth in Nigeria, covering
the period 1994-2012. Taxation was disaggregated into: Value
Added Tax, Personal Income Tax, Company Income Tax and
Petroleum Profit Tax, while the Gross Domestic Product was
used as a parameter for measuring economic growth in Nigeria.
In order to establish causality between Taxation and economic
growth in Nigeria, secondary data were collected from the
Central Bank of Nigeria Statistical Bulletin and the Federal
Inland Revenue Services Bulletin. The data collected were
analyzed using the Granger Causality Approach. The
hypothesis one was tested using F-Ratio, while hypotheses two,
three, four and five were tested using T-Statistics. The results

1204
of the analysis reveal that a significant positive relationship

exists between Taxation and economic growth in Nigeria.
Myles (2000) reviews the theoretical and empirical
evidence to assess whether a consensus arises as to how
taxation affects the rate of economic growth. It is shown that
the theoretical models isolate a number of channels through
which taxation can affect growth and that these effects may be
very substantial. Although empirical tests of the growth effect
face unresolved difficulties, the empirical evidence points very
strongly to the conclusion that the tax effect is very weak.
Endogenous and Exogenous theory were use to carry out
further analytical study and the results shows relationship
between taxation and growth. It begins with a discussion of the
optimal structure of taxation, which describes the form that the
tax structure should possess. This can be compared with the
actual structure to assess whether there is a possibility for
improvement. A discussion of the gains that can be made
through reform of the tax system then follows. The results are a
combination of analytical predictions and numerical predictions
developed from calibrated models.
Nelson (2011) establish the determinants of VAT
revenue and assess the response of VAT structure to changes in
the in its tax bases. The study is important because its results
can be used to design pro-growth tax policies and implement
tax changes that are equity enhancing. The paper uses Paul
Samuelson's (1955) fundamental general equilibrium analysis
of the public sector to derive its main results. In the framework,
the demand function for the public good was derived from a
constrained model of utility-maximization. In the same vein,
tax revenues were taken as functions of household incomes,
which paved the way for the estimation of Engel curves for
public goods. The study finds that growth elasticity for VAT
are all greater than one. The estimation results show that total
GDP elasticity of VAT revenues is less than the elasticity with
respect to monetary GDP, suggesting the existence of an

1205
underground economy in Kenya over the period of analysis. It is

found that VAT revenues respond with substantial lags to
changes in its determinants and that VAT revenues are
sensitive to unusual circumstances.
Alireza, Fariba and Akbarian (2012) examine the effect
of value added taxes on GDP as economic growth for Iran
economy. In this regard we use annually data for 1979-2009
using auto regressive distributed lags (ARDL). Results showed
that value added taxes have significant effect on real output for
Iran and it means value added taxes as a fiscal policy tool have
useful performance in this country. Also government
expenditure, consumption, investment and net exports have
significant effects on GDP.
Loveday and Nwanyanwu ( 2015) study the value added
tax (VAT) administration in Nigeria and examines the
relationship between irrecoverable invoices and VAT
compliance. Twenty small and medium enterprises (SMEs) in
the leasing, manufacturing and construction subsectors of the
economy were sampled. Data were collected through a survey
using questionnaire. Analyses were performed by means of
descriptive statistics and Pearson product moment coefficient of
correlation with the aid of statistical package for social sciences
(SPSS). Findings indicate a statistically significantly moderate
negative relationship between irrecoverable invoices and VAT
compliance. The tax authority could use the findings to decide
on the measures to adopt to achieve efficient VAT
administration taking into consideration irrecoverable invoices.
This study is of value for better comprehension of VAT
administration, particularly by investors entering the Nigerian
business environment for the first time. It also highlights
irrecoverable invoices factor in enforcing VAT compliance in the
context of SMEs.
Ebeke (2010) it investigates in whether the presence of
value added tax (VAT) system increase the benefit of the
inflows of remittances in terms of high and less volatile tax

1206
revenue ratio. This is supported by the fact that remittances

are largely used for consumption. Purposes and contribute to
smoothing private consumption. Using a large sample of
developing countries observed over the period 1980-2006, and
even after factoring in the endogeneity of remittances and VAT
adoption, the results highlight that remittance Significantly
increase both the level and the stability of government tax
revenue ratio in receiving countries that have adopted the VAT.
Bakare and Adewale (2013) investigated the enormity of
the impact of the value added tax on output growth in Nigeria.
Ordinary least square regression analytical technique (OLS)
was employed for the empirical study. The a priori expectation
is that value added tax will impact positively on output growth
in Nigeria. The study found that a positive and significant
relationship exist between value added tax and output growth
in Nigeria. The results of the finding showed that; the past
values of value added tax could be used to predict the future
behaviour of output growth in Nigeria. The main conclusion of
this study therefore is that Value Added Tax has the potential
to assist in the diversification of revenue sources, thereby
providing enough funds for economic growth and conclusion
support the need for the government to satisfy the principle of
economic justice in the allocation of VAT revenue.
Ebiringa and Emeh (2012) examine the empirical forms
of tax on the economic growth in Nigeria. Secondary data were
sourced within the periods of 1985-2011 and Model was
specified and estimated using some econometric. The result
showed that the determinant factor of economic growth in the
country through tax, only and custom and exercise duties is
capable of influencing but has an inverse relationship and
significant to the GDP. It is observed that economic instability
were experienced between 1986-1987 and 1993 to 1995 but
evident in the stability in the economic growth from the graph
in the rest of the years of the study around bench mark value of

1207
zero line of the GDP predicted graph based on tax generations

in Nigeria.
Cletus and Love (2014) investigated State Government
Taxation in Nigeria with a view to determine its impact on
economic growth. The data for this study were generated from
the Central Bank Nigeria (CBN) Statistical Bulletin for a
period of 13 years (1999-2012). The data were analyzed with
multiple regression analysis. The findings revealed that state
government taxation has a significant impact on economic
growth in Nigeria.
John, Ebieri and Emmanuel (2014) this study therefore
examines the dynamic causal relationship between tax revenue
components and economic growth in Nigeria. The objective is to
provide justification for policy adjustments necessary for
broadening the narrow revenue base of the government and
enhancing economic growth using time series data on different
types of Taxes and real gross domestic product from 1986 to
2012. Bounds testing technique was used in analyzing the data.
The results indicate that total tax revenue has a significant
effect on economic growth; explaining about73.4% of the total
variation in real gross domestic product, company income tax,
education tax and other tax revenue were each found to have
significant influence on economic growth; sustaining long-run
equilibrium relationships with real gross domestic product.
Shamsudeen Ladan Shagari (2014) this study examines
the determinants of tax administration efficiency. Tax is a
medium which countries across the globe depend upon so as to
carry out the mandate of their citizens. Unfortunately, the
Nigerian tax system is faced with challenges, such as loss of
revenue through high level of tax defaulters from both the
legislative arm of the government and public institutions,
corruption and financial irregularities and limited government
administrative capability. A mixed research design was used,
and data was collected through survey and interview. A total of
124 questionnaires were collected out of 144 questionnaires

1208
that were administered. The data was analyzed to answer the

research questions. The study revealed that there is a
significant relationship between tax administration efficiency
and: autonomy of board of internal revenue, information and
communications technology and public enlightenment. The
study further revealed that there is no significant relationship
between tax administration efficiency and strong audit practice
and motivation and incentives and perceived corruption.
Umeora (2013) studied on Gross Domestic Product
(GDP), VAT Revenue, and Total Revenue from 1994 to 2010.
Data were sourced from the CBN‟s statistical bulletin, Annual
Reports and Statement of Accounts were analyzed using simple
regression. Findings showed that the ratio of VAT Revenue to
GDP was 1.47 and VAT Revenue Account for 82.5%. VAT was
found to have significant effect on GDP. This implied that
increasing the rate of VAT Revenue will have a positive
significant effect on the Economic growth.
Basila (2010) investigated the relationship between VAT
and GDP in Nigeria. He used data on VAT revenue figure and
GDP figure from 1994 to 2008 obtained from Central Bank of
Nigeria statistical bulletin. The data were tested using
Pearson‟s Product Moment Correlation, the test revealed a
strong correlation of about 96% strength. Further test showed a
significant difference at 99%confidence level in relation to GDP
.He concluded that there is a strong positive correlation
between VAT revenue and GDP.
Unegbu and Irefin (2010) collected data from both
primary and secondary sources. Regression analysis and
ANOVA were used to test the hypothesis and they found that
VAT allocation alone accounts for 91.2% of the variations in
expenditure pattern. From their findings, they concluded that
although VAT allocations to Adamawa State from 2001 to 2009
have a very significant impact on expenditure pattern of the
state during the same period. However the perceptions by the
state suggest that VAT has minimum impact level on the

1209
economic and human developments of Adamawa State from

between 2001 to 2009.
Adereti, Sanni and Adesina (2011) empirically
investigated the contribution of value added tax (VAT) to the
GDP for the time of its inception to 2008. This study uses time
series data on the Gross Domestic Product (GDP), VAT
Revenue, Total Tax Revenue and Total (Federal Government)
Revenue from 1994 to 2008, sourced from the Central Bank
Nigeria (CBN) were analyzed, using both simple regression
analysis and descriptive statistical method. Findings showed
that the ratio of VAT Revenue to GDP average 1.3% compared
to 45% in Indonesia though VAT Revenue Accounts for as much
as 75% significant variation in GDP in Nigeria. However, they
concluded there is a positive and significant correlation that
exists between Revenue and GDP.
Okoye and Gbegi (2013) the study aimed at evaluating
the influence of revenue generated from value added tax (VAT)
on wealth creation in Nigeria. The study used secondary data
that were generated from Federal Inland Revenue Services and
Federal Bureau of Statistical analysis with the aid of a table
and simple percentage, while the hypothesis formulated were
tested using product moment correlation coefficient and t-test.
The findings revealed that revenue generated through VAT has
a significant influence on wealth .Also; Revenue generated
through VAT has a significant effect on total revenue in
Nigeria. From there findings they discovered that Value Added
Tax(VAT) is the bedrock of wealth creation in Nigeria as well as
economic development as it contributes significant to nation‟s
Gross Domestic Product(GDP).
Omolapo, Aworemi and Ajala (2013) perform a data
analysis with the use of regression analysis. Findings show that
Value Added Tax has a significant effect on revenue generation
in Nigeria. The results from their analysis revealed that Value
Added Tax (VAT) is beneficial to Nigeria economy. From the
findings it also shows that for Nigeria to attain its economy

1210
growth and development, Nigeria should able to generate

enough revenue in other to meet up her challenges in provision
of social amenities and cost of government administration. The
result from the analysis indicates that if more goods and
services are taxed more revenue will be accrued to the
government.
Afolayan and Okoli (2015) the study set to ascertained
how VAT has impacted on Nigeria economic growth. The causal
relationship is tested using Granger Causality. Findings show
a positive and significant correlation exists between VAT
revenue and reveal GDP. This study also recommends that all
identified problems and administrative loopholes should be
plugged for VAT revenue to contribute significantly to economic
growth of the country.
Onodugo and Anowor (2013) empirically investigated the
impact of value added tax (VAT) on Nigeria economic growth.
Ordinary least square method of simple regression analysis was
employed to determine the relationships between VAT and Real
Gross Domestic Product, VAT and current revenue, VAT and
Internal Revenue. Result shows that there is VAT is ideal form
of taxation in Nigeria tax system and has significantly
contributed to the resource mobilization as well as capital
formation to the economy .The recommendation is that are
involved both payer and the administrator should be
adequately motivated to enable each perform well and ensure
high level of efficiency and effectiveness.
So many scholars have investigated on the issue of VAT
and its contributions to the nation. Owolabi and Okwu (2001)
showed that VAT revenue contributed positively to the
development of the respective sectors. Izedonmi and Okunbor
(2014) showed that VAT Revenue accounts and total revenue
account for as much as 92% significant variations in GDP in
Nigeria. A positive and insignificant correlation exists between
VAT Revenue and GDP. Both economic variables fluctuated
greatly over the period though VAT Revenue was more stable.

1211
Umeorah, (2013) that VAT has significant effect on GDP and

also on Total Tax Revenue. Though prior research revealed that
VAT as a tax has contributed immensely on the economic
growth of Nigeria. However, the recent economic recession to an
extent has eaten up the economy. This study therefore set up to
assess the effect of value added tax (VAT) administration on the
economic growth in Nigeria.
METHODOLOGY
Research Design
The study employed ex-post facto research design because the
data collected are already in existence and have affected the
economy which the researchers are studying. This cannot be
controlled or manipulated. It is a systematic empirical study in
which the researcher does not have direct control over
independent variables because they have already occurred or
they cannot be manipulated.
The data used in the analysis are secondary data which
include: value added tax, gross domestic product, per capital
income and total revenue which were obtained from the Central
Bank of Nigeria (CBN) statistical bulletin, the publication of
Federal Inland Revenue Services, Federal ministry of Finance
and National Bureau of Statistics, journals and Internet.
Data Analysis
Data for the study were collected from CBN Statistical Bulletin
and National Bureau of statistic were tested with one sample t-
test analysis with the aid of Statistical Package for Social
Sciences (SPSS) was used at 95% confidence at five degree of
freedom (df).
The researcher adopted the Simple Regression model,
this model examined the relationship between the dependent

1212
and independent variables. Mathematically, the model is stated

as follows:
Nigeria economy(Y) =f(XI,X2,X3)
Where = y is the dependent variable which describes
Nigeria economy
XI = Gross Domestic Product (GDP).
X2 = Per Capital Income.
X3 = Total Revenue.
X4 = is the independent variable which represent the
value added tax (VAT).
DATA PRESENTATION AND ANALYSIS
DATA PRESENTATION
Table 1: Data on GDP, Total Tax Revenue and VAT for the three
Hypotheses
Years GDP at Total Tax VAT (In millions) Target VAT Revenue
Market Price Revenue (In Millions)
1999 3194015.00 949187.90 455,300.80 300,000.00
2000 4582,127.30 1906159.70 58469.60 380,500.00
2001 4725086.00 2231532.90 91757.90 500,700.00
2002 6912381.30 1731800.00 108,600.00 396,200,00
2003 8487031.60 2575100.00 136,400.00 572,900.00
2004 11411066.90 3920500.00 159,500.00 800,000.00
2005 14,572,239.10 5347500.00 178100.00 1,304,400.00
2006 18564594.70 6,069,800.00 230,400.00 3,054,100.00
2007 2057317.70 5,727,500.00 301,700.00 1,753,300.00
2008 24296329.30 7,866,600.00 404,500.00 2,274,400.00
2009 24794238.70 4,844600.00 468,400.00 1,909,000.00
2010 29205783.00 7,303,700.00 562,900.00 2,537,300.00
2011 37,409,860.61 4,628,500.00 571,390.00 3,639,100.00
2012 40,544,099.94 5,007,700.00 498,700.00 4,468,900.00
2013 4,805,600.00 588,900.00 4,068,100.00
63,218,721.73
Source: CBN Statistical Bulletin and National Bureau of statistic (1999-2013)
Test of Hypotheses
Hypothesis one
HO: Value Added Tax (VAT) does not contribute to total tax
revenue of the nation.

1213
One-Sample Statistics
N Mean Std. Deviation Std. Error Mean
VAT 15 293790.2200 202290.82169 52231.26557
TaxRevenue 15 4327718.7000 2072117.99358 535018.56537
One-Sample Test
Test Value = 0
t df Sig. (2- Mean 95% Confidence Interval of
tailed) Difference the Difference
Lower Upper
VAT 5.625 14 .000 293790.22000 181765.2969 405815.1431
TaxRevenue 8.089 14 .000 4327718.70000 3180218.0032 5475219.3968
Decision:
From the above one sample t-test table, the calculated t-value is
13.714 while the table t-value is 1.812. This means that
calculated t-value is greater than the table t-value
(13.714>1.812). It shows that Value Added Tax (VAT) improved
the growth of tax revenue. The study therefore reject null
hypothesis and uphold alternative hypothesis which states that
Value Added Tax (VAT) contributes to total tax revenue of the
nation.
Hypothesis two
HO: Value Added Tax (VAT) does not contribute to the Gross
VAT 15 293790.2200 202290.82169 52231.26557
GDP 15 19598326.1920 17323251.11619 4472844.20501
One-Sample Test
Test Value = 0
T df Sig. (2-tailed) Mean 95% Confidence Interval of
Difference the Difference
Lower Upper
VAT 5.625 14 .000 293790.22000 181765.2969 405815.1431
GDP 4.382 14 .001 19598326.19200 10005029.4840 29191622.9000

1214
Decision:
(10.007>1.812). It shows that poor accountability has
contributed to the growth of the economy. The study therefore
reject null hypothesis and uphold alternative hypothesis which
states that Value Added Tax (VAT) contributes to the Gross
Hypothesis three
HO: Value Added Tax (VAT) revenue target has no impact on
the actual VAT within the period of study.
TargetedVATRevenue 15 1863926.6667 1429760.18592 369162.49261
VATRevenue 15 321001.2200 194025.54292 50097.17977
One-Sample Test
Test Value = 0
t df Sig. (2- Mean 95% Confidence Interval of
tailed) Difference the Difference
Lower Upper
TargetedVATRevenue 5.049 14 .000 1863926.66667 1072151.8668 2655701.4665
VATRevenue 6.408 14 .000 321001.22000 213553.4557 428448.9843
Decision:
(11.457>1.812). It shows that Value Added Tax (VAT) has
removes burden/complexity of business men without much
stress hence easy to calculate. The study therefore reject null
hypothesis and uphold alternative hypothesis which states that
Value Added Tax (VAT) revenue target has impact on the
actual VAT within the period of study .

1215
From the three hypotheses tested, the result shows that Value
Added Tax (VAT) contributes to total tax revenue of the nation
also to economic growth via the GDP. It‟s also revealed that
Value Added Tax (VAT) revenue target has impact on the
actual VAT within the period of study.
This result is in line with Izedonmi and Okunbor (2014)
whose result showed that VAT Revenue accounts and total
revenue account for as much as 92% significant variations in
GDP in Nigeria. A positive and insignificant correlation exists
between VAT Revenue and GDP. Both economic variables
fluctuated greatly over the period though VAT Revenue was
more stable. Also the result of Umeorah, (2013) who testified
that VAT has significant effect on GDP and also on Total Tax
Revenue. The finding is also in line with Owolabi and Okwu
(2001) who showed that VAT revenue contributed positively to
the development of the respective sectors.
SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS
Summary of Findings
Based on the analysis results, the following findings were
drawn;
1. The result shows that Value Added Tax (VAT)
contributes to total tax revenue of the nation.
2. The study also revealed that Value Added Tax (VAT)
contributes to the Gross Domestic Product of the nation.
3. Value Added Tax (VAT) revenue has impact on the
actual VAT within the period of study.
Conclusion
This paper empirically investigated the contribution of Value
Added Tax (VAT) and total revenue to the GDP from 1999 to
2013. This was done against the background that it was
introduced by the Federal Government of Nigeria in 1993 to

1216
replace Sales Tax. The aim was to increase the revenue base of
government and make funds available for developmental
purposes that will accelerate economic growth. Time series data
on both the GDP and VAT Revenue from 1999 to 2013, sourced
from Annual Reports and Accounts of the Central Bank of
Nigeria (CBN) were analyzed, using one sample t-test.
Findings showed that VAT Revenue and total revenue
account for 92 percent of variations in the GDP. This high
explanatory power shows that the model is a good fit, and that
these components of VAT revenue and total revenue are
important determinants of economic growth in Nigeria. VAT
Revenue is making a unique significant contribution to the
economic development of Nigeria and composition of the GDP.
Recommendations
At the completion of this research work it was established that
VAT has negative significant effect on GDP of the Nigerian
economy also, VAT has positive significant effect on PCI and
VAT has a significant positive effect on TR of Nigerian
economy. Therefore the researcher made the following
recommendations:
1. Governments agencies, corporations and ministerial
departments are advised to be loyal, disciplined and
judiciously utilize public funds derived from VAT by
providing infrastructural facilities needed to improve the
economic activities of Nigeria and thus improve GDP.
2. Government should make deliberate efforts to widen
the economic activities to enhance improved standard of
living because the standard of living is improved with
higher per capital income.
3. Government should maintain close surveillance on the
VAT able persons to enhance prompt remittance of VAT
revenue and submission of VAT invoice for proper tax
audit by the Federal Inland Revenue services (FIRS) to
ensure adherence to tax Laws as at when due.

1217
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Effect of Value Added Tax on the Nigerian Economy

Article in European Academic Research · July 2017

Oraka Azubuike Onuora Theophilus Okonkwo Okegbe

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Impact Factor: 3.4546 (UIF)

Effect of Value Added Tax on the Nigerian

Key words: Value Added Tax, the Nigerian Economy

Taxation forms the most important sources of revenue to the

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

been in effect in Ecuador and Mexico since at least (1973) and

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

countries including Nigeria. Over the years Value Added Tax

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

2. To determine if VAT contributes to the Gross

REVIEW OF RELATED LITERATURE

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

register for VAT within six months of its commencement of

2. Implementation of VAT in Nigeria

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

4. All businesses and organizations are to register for vat

The guides above is based on the provision of the value added

3. Administration of Value Added Tax in Nigeria

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

Richard (1993) concluded that “the successful execution of fiscal

The establishment of additional 25 VAT offices and 5 zonal

Per Capita Income

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

expressed in terms of commonly used international currency

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

Ebiringa and Emeh (2012) examined the empirical forms of tax

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

Ajala, Oladayo and Ayorinde (2010) examined the impact of

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

local goods thereby increasing income generation from taxation

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

technique (OLS) was employed for the empirical study. The

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

expenditures; and value added tax did not bear significant

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

sales tax, as an alternative to value added tax; related value

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

collected was analyzed using the ordinary least square method

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

findings includes: Petroleum profit tax impact positively on

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

Adesina and Famous (2013) assesses the level of tax education,

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

adopted. The findings shows that A, VAT has economic impact

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

collected revenue on total consumption expenditure can be as a

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

of the analysis reveal that a significant positive relationship

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

underground economy in Kenya over the period of analysis. It is

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

revenue ratio. This is supported by the fact that remittances

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

zero line of the GDP predicted graph based on tax generations

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017

that were administered. The data was analyzed to answer the

EUROPEAN ACADEMIC RESEARCH - Vol. V, Issue 2 / May 2017